{"id":107568,"date":"2019-02-14T00:02:13","date_gmt":"2019-02-14T07:02:13","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=107568"},"modified":"2023-04-14T03:15:52","modified_gmt":"2023-04-14T09:15:52","slug":"biggerpockets-podcast-317-building-multifamily-real-estate-empire-scratch","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/biggerpockets-podcast-317-building-multifamily-real-estate-empire-scratch","title":{"rendered":"Building a $300MM Real Estate Empire from Scratch with Multifamily Investor Chad Doty"},"content":{"rendered":"<p>Ever dreamed of being a <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\">successful multifamily investor<\/a> who owns millions of dollars in real estate while others manage your assets?<\/p>\n<p>Well, today\u2019s guest is doing just that! Brandon and David sit down with <strong>Chad Doty<\/strong>, a one-time businessman who ditched corporate life and moved on to real estate, now owning 3,000 units!<\/p>\n<p>Chad shares TONS of meaty insight, including what he looks for when choosing a market, where he\u2019s currently investing (and avoiding), and four rules of thumb for building a multifamily business. Chad gives great advice regarding overcoming high barriers to entry, getting brokers to take you seriously (even as a newbie), and adding value to properties in order to generate big profits.<\/p>\n<p>Plus, you DO NOT want to miss Chad\u2019s take on finding deals others are missing, the order in which you should build your team, and how he would invest his grandmother\u2019s last 100K! If you\u2019re looking for an episode with so much value you\u2019ll feel guilty you didn\u2019t have to pay for it, download this one now!<\/p>\n<p><a href=\"https:\/\/itunes.apple.com\/us\/podcast\/biggerpockets-podcast-real\/id594419649\" target=\"_blank\" rel=\"noopener\">Click here<\/a>\u00a0to listen on iTunes.<\/p>\n<h2>Listen to the Podcast Here<\/h2>\n<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC9864838204&#038;light=false\" width=\"100%\"><\/iframe><\/p>\n<h2>Read the Transcript Here<\/h2>\n<div style=\"overflow-y: scroll; max-height: 400px; background: #eee; padding: 20px; border: 1px solid #ddd;\">\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>This is the BiggerPockets podcast Show 317.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>\u201cHonestly, buy good dirt, you know. If you buy in a location where you\u2019d put your grandma\u2019s last $100,000, odds are, you\u2019re never going to lose money\u201d.<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>You\u2019re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you\u2019re here looking to learn about real estate investing without all the hype, you\u2019re in the right place. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>What\u2019s going on, everybody in BP Nation? This is Brandon Turner, host of the BiggerPockets podcast, here with my sniffly friend, Mr. David Greene. David Greene, do you have a cold or was that just a weird sniffle that you didn\u2019t mean to do?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Nah, that was just a BiggerPockets sniffle. That\u2019s just one of the ways I express my enthusiasm for being here, actually. I\u2019m overwhelmed and it expresses itself through sniffles. I\u2019m doing really good. Thanks for asking and not pointing out an awkward thing instead.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You and I just got back from Colorado not too long ago and the bad news is, I was overwhelmed with altitude sickness and nausea the entire time I was there. But the good news is, I spent a lot of time in my hotel room thinking about 2019, came up with some really good plans. I have an extreme amount of clarity about how I want 2019 to be different from 2018 and this is the most excited I\u2019ve been in a really long time.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Nice. So you\u2019re going to finally pursue that clown college where you\u2019ll learn how to travel the circus?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Yeah, it\u2019s a mixture of clown college and slam poetry. I\u2019m going to see if I can combine those two worlds together and create an act that nobody\u2019s ever seen.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>This is the best idea I\u2019ve ever heard. And with that, let\u2019s get to today\u2019s Quick Tip.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, today\u2019s Quick Tip has nothing to do with what David just said but very shortly\u2014today\u2019s episode is a really, really, really good deep dive into the world of multifamily and commercial real estate investing. And as such, you\u2019re going to hear some terms that you might not know what they mean. Because like, this is like a legit deep analysis of how to get into a multifamily and how wealth is built there. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So here\u2019s what I want to do. For a Quick Tip today, it\u2019s this. There\u2019s a term you don\u2019t understand. Jot it down. Go to the site, search it. Don\u2019t go I don\u2019t know what he\u2019s talking about. I\u2019m going to stop listening. But say hey, I\u2019m going to use this as an indication of what I need to learn and how I can grow as an investor. So I\u2019m just putting it out there.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Also, it\u2019s kind of a cool little thing\u2014did you know that if you\u2019re on the BiggerPockets forums and there\u2019s a word or an acronym that you\u2019re not sure what it means? On a lot of them, we have like this cool little software where if you hover your mouse over an acronym, it will tell you what that phrase means. If you\u2019re like, what\u2019s BRRRR? You can hover over it and be like, Buy, Rehab, Rent, Refinance, Repeat. Anyway, kind of a cool little feature on the BiggerPockets forum, which of course you\u2019re free to hang out on, so go hang out there.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>I would highly recommend that you do that, especially for this episode. This guy is good, he is smart, but he is especially meaty. He is meatier than MissionMeat.Co. He is meatier than grandma\u2019s Christmas jambalaya in Louisiana. This is a meaty, meaty show. You probably want to listen to it a few times and make sure you chew every bite 15 times on each side. You don\u2019t want to choke.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Was that an analogy? That was really good.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Yeah, that was a freestyle analogy. It\u2019s another thing I\u2019m moving up, like slam clown poetry. I\u2019m fixing these two things together. I\u2019m going to be the Eminem of analogies.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s an analogyist.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>That\u2019s a good point. Analogy within an analogy. It\u2019s like inception. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Weird. All right, moving on. Let\u2019s get to today\u2019s show sponsor.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>All right everyone, it\u2019s tax season and this is the time of the year I\u2019m so thankful for Stessa. Stessa is an essential and really cool tool that every rental property owner needs. It helps you track, manage, and communicate the performance of your real estate investments. And it will save you a tremendous amount of time. So if you\u2019ve got receipts everywhere and you can\u2019t quite figure out how the new tax law impacts us real estate investors, Stessa has you covered. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>See, they\u2019ve teamed up with top real estate CPAs to offer you the ultimate rental property tax guide and help you keep more of your hard-earned dollars in your pocket. You know, I love this guide because it\u2019s full of actionable strategies that you can use on your return. And, it helps you optimize your strategy for 2019. Get a copy of the guide when you sign up for a free Stessa account. That\u2019s right, free. Just head over to Stessa\u2014Stessa.com\/BiggerReturns and sign up for a free Stessa account, track your rentals. Again, that\u2019s Stessa.com\/BiggerReturns. Get your rental property tax guide today. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>All right, thanks to our sponsors always and that\u2019s really all I got so let\u2019s jump into the show. So today\u2019s guest is Chad Doty. Chad is a real estate Rockstar investor, buy lots of big multifamily. You guys are going to love this show. He goes everything from how to get started with a large, multifamily index like the Four Rocks, is I think what he said, about what you have to have in order to build any size real estate business. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Make sure you listen for that. And then I love his advice towards the end where he talks about how to know what market to go into. I\u2019ll give you a hint. It has to do with your grandma\u2019s money. So just stick around for that. Again, this show is deep, complex, and really, really important if you want to get into multifamily. So listen up. Without further ado, let\u2019s get into today\u2019s show. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, welcome to the show. Chad, good to have you here.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Thanks for having me, guys.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, yeah. So let\u2019s get into your story and go into your real estate journey, starting from the very beginning. How did you get into real estate? Let\u2019s talk about your first deal.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, yeah. So I\u2019m a recovering management consultant. I didn\u2019t grow up in real estate. Yeah, exactly. I was with a small company called Arthur Anderson that got destroyed by Enron. Not on the audit tax side, it was in consulting and a bunch of really good people got spread into the wind and went from $9 billion revenues and like thousands of employees to 60 attorneys in Switzerland in like six months.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Anyways, I was maybe a year or so from partner in that, so I was close, so the hockey stick compensation model just went poof. And then, so I left that and I went to go work for a company and realized I\u2019m chronically unemployable and I hate being a staff to someone else\u2019s goals, worked in another consulting firm, then I decided to start my own consultancy. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Along the way, you might be billing a good rate, $200-$300 bucks an hour but you\u2019re still just trading time for money. So it was this goal of how do I make it where I can scale lifestyle and financial security and then financial freedom in ways that are purely a function of I have to work harder and harder and harder. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I actually started with, I did kind of an options fund for two years. I did S&amp;P credit spread for like two years. I made money and I hated it. And then eventually, I went to real estate and what it was, I wanted to deconstruct the lifestyle I wanted. So I wanted it to be evergreen. I wanted it to be provide me cashflow on going. I wanted to have really good tax advantages and I wanted to make sure I didn\u2019t hold its hand every single day. I didn\u2019t want to slip. I didn\u2019t want to own a job. I wanted to create a business. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So then I wanted to create a risk profile of all the different asset classes in multifamily in real estate. Retail, office hospitality, land storage, what have you. Multifamily to me was the most compelling because\u2014and again, this is my preference. It\u2019s not an absolute but for me, it was, I can make a little bit less money than every single deal depending on the market cycle but I can make money in every market cycle. I can have the best long-term track record of any of the asset classes, even giving up some long-term profitability. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Okay. How do I make that happen? And then, so it\u2019s okay\u2014we picked multifamily. And then it was, how do we be really good at it and build a really, really scalable business? And then it was, okay. That\u2019s what we\u2019re going to do. So it was myself and another guy. We initially started it and then bought out our third partner pretty much in the third year. The first one sort of exited about five years ago. And then I sort of built it from there. Sort of, we picked the asset class, bought our first deal in 2009. So we started the business in 2008. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Okay, so before I go to that first deal, which I\u2019m going to, there\u2019s a couple of quick questions I have for you. First of all, I\u2019ll just call out something kind of cool. You basically labelled four things that you found beneficial about real estate. You wanted something evergreen. And can you explain to me what you mean by evergreen? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, so recovering management consultant, military father, I can speak in acronyms the entire call. Please check me. So evergreen is a business model that will always be around and can\u2019t be horse and buggy. It can\u2019t be Blackberry. It can\u2019t be Kodak. So can you think of anything that would disintermediate\u2014two things, a place to sleep and a place for your stuff. No one yet has an answer.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Elon Musk might think one up but it\u2019ll be on the Mars Rover or whatever. So until then, so that business model isn\u2019t going away. And then inside multifamily, I didn\u2019t mention this\u2014we work in the middle of the bell curve. So median household income is $57,000-$58,000 a year. That\u2019s also the bulk of that B-grade renter population. So for us, we work with 1985 to 2005 built assets that serve that client that is rent set of economic preference and economic need. So for us, okay, they are never going to go anywhere. How are we going to serve them as good or better than anyone else on the market?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, I love that. I love that you said\u2014a couple of things there. First of all, you were the vast majority of the people are in the U.S.\u2014that\u2019s not really changing. Yeah, that might change up to the $59,000 around to 55. But at the end of the day, Grant Cardone, the last time we had him on a podcast here, he mentioned how he specializes in $900 rents. Because $900 rents\u2014he used them as an example but they aren\u2019t going anywhere.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But I like that you said the bell curve because that\u2019s what that is. It\u2019s where the bulk of the people are. So if you want to call it that, that\u2019s super. So you mentioned evergreen which is great cashflow. Extra money. Tax benefits. The fact that you ran a business, that you\u2019re not beholden into trading time for dollars. Those four things led you to multifamily. Fantastic. And then you said something that I loved there. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You asked yourself the question, how do I get good at that? And then you said how do I become the best in my market, serving those people? It\u2019s something that most people don\u2019t think about. They just think, how do I get into it? Not how do I get good at that. Was that your consulting background that led you to that or is that just kind of how you think? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It\u2019s a little bit of both but if you look at people\u2014things your father tell you that creep in your life. Find someone who\u2019s done what you want to do, do what they\u2019ve done and look at what they\u2019ve got. So very rarely are we modeling people who are just in something. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We\u2019re modeling people who are successful at something. That\u2019s your bar. Not doing it. And in real estate, there\u2019s a couple of myths that we could eliminate from late night TV and horrible books that sit in garage sales around the United States. The first one is that if the deal is good enough, money will find you. It\u2019s a lie. It\u2019s not even a myth. Well, here\u2019s an example. Do you have siblings? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I do.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Brother or sister?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Both.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Let\u2019s assume you have an older brother who is a complete alcoholic and pick on siblings because that\u2019s what we do. I\u2019ve got a younger brother. And he came to you with an amazing deal. You looked good on paper but he was like, I\u2019m the manager. Would you invest in that deal?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Not at all.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Right. So money flows to people that know what they\u2019re doing. Money flows with competency. Not to good deals.. Competency finds good deals but you need the competency first. So if you want to be successful, my belief or our belief, I think it\u2019s proven nowadays\u2014become that person first. Don\u2019t go find a deal. Be good enough to be there.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I like that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>And the other one is, you make your money when you buy, which isn\u2019t true either. You establish your baseline profit and you buy below market but you make your money when you operate and sell.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I like that. A little twist on how most people look at that. I think it could be a cop out on both of those. You\u2019re like whatever, I got a really good deal. The money is going to magically appear and then it doesn\u2019t appear and people get stuck and they\u2019re like, I\u2019m not sure why. So how would you answer the question\u2014and I know we\u2019re going to get into the deals here\u2014which comes first? The deal or the money? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Think about a newbie trying to buy their first deal. Which comes first, the deal or the money, in your opinion?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>I think you\u2019ve got to back up a step and there is\u2014so internally, we deconstruct our business a lot and there\u2019s a term we use called your MAC profile, which is your market, approach, and capability. And you have to know what those are. What are you good at? How do you want to approach the market and where is that market?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Because you could be a ground up developer in a market with flat rents and you\u2019re at equilibrium in supply and demand. You\u2019re not really going to do very well. Or you could be someone who owes long-term and you\u2019re in an accelerating market. You go in and you don\u2019t have any value ad opportunity. You\u2019ll do okay but you would do a lot better if you understand how to do value ad.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So you have to align what you\u2019re good at first and then what markets you want to work in and then what approach is working in that market. So those are the things\u2014so if you know that, you then can go to\u2014when you talk to your money, it\u2019s here\u2019s what we\u2019re doing. Here\u2019s our business plan. Do you like this business plan? If so, I\u2019m going to go find deals. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We believe that hot money is far better than a hot deal. Because a hot deal, you screw up and you\u2019re killing your reputation and you\u2019re wasting your brother\u2019s time. You\u2019re in the middle of all these professionals and multifamily space and you\u2019re messing with our livelihood by you not being good enough to go raise the capital. Whereas if you raise the capital working with your investors, worst case scenario, they have an extra few months getting two percent.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>There you go.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>I mean, that\u2019s our take.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>So before we go on much further and ask you about your first deal, I have a few questions I want to ask you. The first is going to be, for those who say okay, it matters where I buy\u2014can you give us some advice of where you go to get some of your information regarding census data, population growth, a job, employment, migratory patterns. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then the second question is, you made a very good point that I wanted to highlight that you need to work on yourself and who you are before you just go find the deal. Brandon often says if you find the deal, the money will find you. And it will, because in real estate specifically, people are investing in a deal and if you screw it up, they can still get the deal, right?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But the fact remains, what you mention is true as well. If you\u2019re the kind of person who\u2019s not that great, you\u2019re not going to get the deal in the first place. You\u2019ve got to work on yourself in order to find those. After you answer, what are some of the ways people can look and see where they should be investing, as far as what part of the country, because I get asked that question a lot, too. Can you explain, what are some things that you found where he and you working on yourself or the other successful people that you\u2019ve met that got it, what did they do right? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>We could spend two hours on actually both those topics. So we are demographers. We definitely believe that, and it\u2019s proven out that when you\u2019re acting, you\u2019re acting first at\u2014there\u2019s no national real estate market except in the finance space. Finance is national. Everything else is local. So psychographics are local. Policies at the state level, at the MSA level, at the neighborhood level, at the zip code flection level, at the site level, all of that stuff. It\u2019s all local.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So there\u2019s MSA stats, you obviously have to have. The employment growth and population growth, components of employment growth, components of population growth, all those trends are available from census, BLS, Texas A&amp;M University. All those stuff you can get from those three sources. And if you don\u2019t want to go there, you can also subscribe to Neighborhood Scout, which is a fantastic tool. If you have a relationship with a mortgage broker, you can get access to Axio data, CoStar data. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Like, we have CoStar and Axio subscriptions as well. But when we started, we didn\u2019t. We were looking at stuff online up on our own and then getting corroborating data. It\u2019s still a wildly inefficient market. And the data is out there but how you guys might interpret it\u2014like, Brandon and David, you guys might look at the same set of data and have completely different conclusions based on your own opinion and your business plan. But we\u2019re not big believers in ever buying in a market where we\u2019re not buying at least at or above market\u2014U.S. employment and at or above population growth, period. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But then you also need to go into that employment growth and go okay, where are those jobs going? Are they innovation jobs at north of $95K that will have a trickle down effect or are they core blue collar jobs that will immediately impact\u2014both are valuable but in different ways. So you\u2019ve got to go through all that stuff. But again, those three sources have most of that data and if you need to buttress it, again, go get CoStar or Axio or what have you. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Cool.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>And there\u2019s easily 17 on metrics at the MSA level that we go through but I\u2019ll just touch on some of the big rocks. There\u2019s also crime schools, local level. There is state policies, tax policies, landlord-tenant laws. I\u2019d love to visit Portland but I never want to own in Oregon. It\u2019s like little France when it comes to landlord-tenant laws. California is beautiful, similar rules. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">There are websites that are dedicated to learn how to live rent-free and manage the system every six months. If you\u2019re local to those markets and you understand them, that\u2019s fine. But as someone like us who were based in Richmond, Virginia, all of our assets are in Texas and the Carolinas and what have you, we\u2019re like, we need something we can trust a little better. Success metrics\u2014commitment is the number one thing. Do you guys have kids? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I do. Yeah, one.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Okay. So, David, do you have a dog? Or a cat? Or are you not a pet person?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>I actually try to live my life as clean as possible. I have nothing at home. It would die if it were there. I am not home enough to take care of anything.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Okay, so just a test on commitment, right? Via unconditional love. I\u2019m a firm believe that you don\u2019t witness unconditional love unless you own a dog. Because a dog will give you basically unconditional love. You only see it at that point. You don\u2019t experience unconditional love until you have a child. Because before that child was born, and even immediately when they show up, you\u2019re like, I will take a bullet. I will do whatever it takes to make sure this child grows, thrives, or whatever.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But you think about unconditional love, that commitment. So imagine you took the level of commitment of, this child will thrive, to I\u2019m going to rock this business. And real estate, at least commercial multifamily is a high barrier to entry business. Once you\u2019re in, you really have to try to screw up. Because there are so many good people wrapped around your team that are monetized and incentivized not to fail. But the trick is getting there and can you invest in yourself enough over a one to two to three year period to get through it. There are certain ways to get in.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So that number one thing is commitment. It\u2019s not a I think it\u2019d be fun. It\u2019s more a, I\u2019m going to do this. So that\u2019s the number one. We break our business models in the four areas. Business architecture, deal development, capital development, and asset management. And you\u2019ve kind of got to lead with one of those four to build your business to wrap around. And then at that point, you\u2019re looking to find what you need to buttress with, external team for your own partnership.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Can you say those four again? I want to write that down.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Business architecture. So basically, the act of acting on your business. What are you doing to optimize the pieces that aren\u2019t going as well as you want? If you think about business like a wheel that\u2019s got spokes in it, let\u2019s say a wheel bare minimum needs three or four spokes to roll. If you grow one spoke too far, it doesn\u2019t roll anymore. If the spokes fall out, it doesn\u2019t roll anymore. So you can only grow as much as all your spokes can. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The other one is capital development, so bringing in equity and debt. Deal development. Where are you sourcing the assets? What MSAs, what submarkets? What neighborhoods? What sites? How are you getting them? 96% of all the deal flows, flow through a broker inside the commercial multifamily space. If you\u2019re a seller, you are wildly incentivizing not to. So what relationships do you need to create? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You very rarely as a letter campaign\u2014I mean, like very rarely, is a letter campaign going to work in this space. It might in residential but not in multifamily. And then asset management. What are you doing to take over 90-day optimized, capex plan, budget out, implement all that stuff, measure your value ad, operate in that window, and then sell. Or refi and keep. Those are the four big rocks.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>So to summarize all of that up, I\u2019m going to use real simple terms here. You\u2019ve got to have the money. You\u2019ve got to have the deal. You\u2019ve got to manage it right. And then you have to run your business correctly. I mean, is that a good summary?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Thank you for doing that for me because that would have taken me a while to do.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Brandon\u2014I usually dumb things down to my level. These big words that you\u2019re using are terrifying so we\u2019re trying to rapidly convert them into something that isn\u2019t intimidating to us so we can understand. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You guys have had enough podcast guests, yeah. I\u2019m sure you\u2019re probably frustrated with\u2014it\u2019s tough because you think that way, right?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>No, we don\u2019t have a problem with it. We do, too. We\u2019re just making fun of ourselves right out. I mean, I think it\u2019s brilliant what you\u2019re describing. And what Brandon is about to do, which I know, is he\u2019s about to explain this is the same way it works in single-family investing or flipping or any business, right? That\u2019s where he was going. He\u2019s got the three levers, right? The money, the deal, and managing it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then what you described was business architecture, which is a pretty cool way of saying like, running an actual business. That spoke analogy that you gave was so good because that\u2019s the problem I\u2019m having. I ran out and said, how can I be the best at everything? And I left my hub and I developed like nine different spokes that ended up at a wheel and was dominating it. And then I looked around and was like, I can\u2019t handle this. I\u2019m really far away from my hub. I need to be in all the spokes. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And my team was like, that\u2019s scary. I don\u2019t want to go out there with you. And I realized that I didn\u2019t focus on business architecture nearly enough. If I just ran out there and got the money and the deals and managed the asset, so that\u2019s a very good point to bring up is that don\u2019t get caught up in the bright and shiny thing and chase after stuff you want if you don\u2019t have the infrastructure to support you once you have it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>And whether it\u2019s infrastructure or focus, there\u2019s a lot of that. So at one point in time, we do multifamily owned right now, but at one point in time, we had over 100 capital homes. We thought, hey, if we have this, it will act like a multifamily. We made twice, three times as much money in half the time we do today because a portfolio of capital homes is hard to scale. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You either have to build a property management company or you\u2019ve got to rely on very mom and pop local property management. There\u2019s no good national. So you can make money, it\u2019s just as you get bigger and bigger, your headaches start to exacerbate because of the control and non-localization of it. But still that, focusing is helpful. It\u2019s also your corollaries, what do you say no to? You\u2019re the bright, shiny object. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">It\u2019s in Buffetts, letters, basically the trick is pick your top five projects and everything else you just say no to forever. As long you finish those five, a new five will show up. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, I remember hearing this story. I think it was a Buffett story. It\u2019s kind of like every quote is Abe Lincoln. But I think it was Buffett where he said, they killed his pilot\u2014make a list of the 20 things you want to do in life and then take your top five. Those are your most important things. And the next 15\u2014and the guy says like, yeah, those are my next important things. And he goes, no, those never do. No matter what, don\u2019t do those. They will kill your top five.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>So I think what we should do is, we should write that quote and at the end of it, say Abe Lincoln, and at the end of it say, Brandon Turner. I just got that in the office one time.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It will show up on Brandon quotes in like six months.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Brandon quoting somebody else\u2019s quote. So I agree with what you\u2019re saying about single-family. I ran into the same thing. I get a lot of people that say, how many doors do you have? That\u2019s not really a metric you use with single-family investing because it doesn\u2019t matter. But what happens is you get wildly inefficient when you start stacking up single-family homes. It\u2019s a great way to get into real estate. It\u2019s a great way to build wealth for that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The overwhelming majority of investors out there, this is your bread and butter and it\u2019s what you\u2019re going to do. If you get good at this or you commit to what you were saying a minute ago, Chad, to this whole thing, you do not want to stay in multifamily because it\u2019s like having a herd of cats as opposed to a herd of cattle where you can kind of control and exercise some power over and hire a cowboy to run it, right? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Trying to herd cats is horrible and that\u2019s what it feels like when I\u2019ve got all these single-family homes with all these individual problems popping up and individuals\u2019 property managers trying to talk to me. Yeah, it gets really difficult. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yep.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>Hey, it\u2019s Brandon. I want to take a quick break from this week\u2019s podcast to invite you to this week\u2019s webinar, which is How to Buy Your First, Second, or Third Rental Property. Look, investing in real estate is like moving in a train, a big locomotive. The most difficult part is getting it started. It\u2019s a lot of energy but once you get going, it\u2019s kind of hard to stop, right? <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>That\u2019s why in this free online class, I\u2019m going to be walking you through exactly how to get that train moving\u2014how to buy your first, second, and third rental property so you can get that going\u2014a life of financial independence. So what are we going to be covering? Things like how to get funding for your first deal even though you don\u2019t have a lot of cash. Three steps for finding a great deal. Three actionable strategies for finding deals that are hiding in plain sight and a very simple, step-by-step process that you need to be focusing on right now to get more deals. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>Now, this is going to be awesome but it\u2019s so limited. So go to BiggerPockets.com\/123webinar to sign up and get your spot. See you there.<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>All right, enough of that. Let\u2019s hear about your first deal. I\u2019m very curious to hear about how your real estate experience started off.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You got it. So I was telling the story to a guy with multiple billions, which is not common for us to have in our boardroom, but he was there. And we talked about the fact that we started in 2008 and he is like\u2014this was a year ago. He was like, you\u2019re either really, really smart or really, really dumb to start then. And I was like, do I get to choose the answer or time will tell.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>It doesn\u2019t have to be either\/or. I can be a little bit of both. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Talk to me in ten years. But we started in \u201908 with the idea of both, cashflow homes and multifamily. And then we ended up buying a multifamily deal in \u201909. It was a $4.3 million dollar deal in College Station, Texas. We raised about $2 million or so. This one we bought, 1979 built. No environmental but sort of on edge of the 1979-1980. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Bought it very with the assumption because lending at that time was really hard. The capital markets had constrained already, so it was hard to get lending but you could still assume a non-recourse commercial multifamily loan. So that\u2019s what you did. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>So you could take over and\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, absolutely. 55% LTV assumption. So $4.3 million dollar deal and we\u2019re bringing north of $2 million dollars to close with a equity raise including reserves. So I did that deal, operated it, but it wasn\u2019t really value ad at that time. We weren\u2019t seeing really much in the way of rent growth. So you\u2019re really managing occupancy and keeping your incentives low. And turnover. And it was a mile or so from Texas A&amp;M. So not a small school, primarily a student population. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So we didn\u2019t run it like a rent by the bed. It was still a rent by the door, but the difference in student housing is when you rent, you can lease out the bedroom. So you might have four people in there and four bedrooms, then you have four different leases and it lets you make more money in that but you deal with the constant, almost 100% turnover every single year and you\u2019re not always occupied because you deal with a summer low. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So that\u2019s rent by the bed student housing. We did rent by the door, normal. And we made money. I mean, that deal was spinning anywhere from 4-6% cash on cash. Overall return was single digits annualized in 8-9 range. So we made money on it but the business model could have been a lot better had we done a value ad play a few years later and accelerated it. So it did well, took care of the client and had a really good tax play on it, too. Sold it and moved into another project in Kentucky. So we did basically an exchange into another project. But that was the first one. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Why did you sell that first property?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>We\u2019re, business model wise, we\u2019re a long-term holder of cash-producing assets. That\u2019s the core of who we are. So we want to get blended returns but at the end of the day, it must be consistently cash-producing in a market, we would put our last $100,000 in. So that one was doing well but we did not see it continuing to excel. Basically, it topped out borrowing any reskinning of it or rebranding of it, which we didn\u2019t think the site justified. So we were like, hey, we don\u2019t think we can do much more with this. Let\u2019s go ahead and take it to market.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, that makes sense. Sometimes, especially when you\u2019re doing value add, but even with a regular one, if you get to that point where you\u2019re not getting\u2014what\u2019s the phrase we use, oftentimes\u2014not depreciate\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>The law of diminishing returns.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, diminishing returns but almost like you can keep holding onto it but at some point your returns will start dropping more and more. So in real estate, it\u2019s a value add from time to time. So I\u2019m wondering about that deal. You said in the beginning, you\u2019re getting 4-6% cash on cash return. So in other words, those who are listening, it\u2019s like the cashflow or the kind you get, like straight from the cashflow. And then 8-9% overall return, like per year average, correct? Like basically, for your investors. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I guess I\u2019m wondering, did you give all of that to your investors? Was that what your investors got, like 8-9% or that was total and you guys are taking a piece as managers of the deal? How did that kind of structure work in the beginning?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, so all of our deals\u2014and this is a pretty common model. You mentioned Cardone\u2014he\u2019s primarily\u2014there\u2019s always other syndicators in this space. But you\u2019re typically going to see an acquisition fee when you buy a deal. It\u2019s basically compensating you for all the time, effort, expertise it takes to put the deal together and get it funded and debted up and all that stuff.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So we had that piece already. Then we got an asset management along the way, and then we got a percentage of the profits at the disposition. And there was a supplemental refinance, too, in the middle, that let us put some cash back to the clients.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Okay. How do you raise money on a first deal, especially when your first deal is a large thing. It\u2019s not like you bought an $80,000 house in Texas. That\u2019s right\u2014you bought an apartment building. So how did you go and raise a couple of million dollars, just from your contacts from your past?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, the trick is when you go to do this, depending on there\u2019s the regulatory environment you\u2019re going to work in. So when you are doing commercial multifamily, it\u2019s not real estate anymore unless they\u2019re on the title. And typically not. It\u2019s they\u2019re a percentage interest owner of an LLC. That\u2019s the 99% model. In that case, they are dependent on the asset manager or owner, the syndicator, whoever, to make it do well. So now you securitize the deal. And if you securitize the deal, you\u2019ve got different models. Reg-A, 506B, 506C, and now crowdfunding. Which we\u2019re not big fans of because of its limits. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But Reg-D 506B basically lets you work with an unlimited number of accredited and 35 non-accredited but they must be friends with some family. They must be people you know. So if you don\u2019t know people that are able to invest $50,000-$100,000 or so in this, you know you have a gap. Not a limit, but you have a gap you have to fill, right? So how do I then become the person that would be interested in the product I have where I can develop relationships to create those licenses. I\u2019m not going to be able to do that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I\u2019m not going to tell somebody, go talk to so-and-so because right now, it\u2019s a little bit harder because 506C showed up which allowed you to advertise and it works only with accredited investors. You can advertise to create investors. You don\u2019t have to worry about your friends and family but there is\u2014can you get an accredited investors\u2019 attention? Are you that person who is good enough to do it? So you\u2019ve got to decide how you want to go to market with it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But yeah, you have to have a business strategy you can bring to your clients to get what\u2019s called an expression of interest. If I bring you a deal like X, would you be interested? If so, let me know. When a deal comes around, I\u2019m planning on having one in the next six to nine months. Let\u2019s sit down and talk if it makes sense to you, participate. If not, no big deal. So developing that first lets you go to market. And you\u2019ve got to be the person who\u2019s worth it and the net worth to get it. And then you can go. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>And in a sense, isn\u2019t that when you can find that deal, then they\u2019re going to come?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, but realize but you\u2019re qualified. You\u2019re worth it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>I just married your two ideas. Brandon\u2019s belief that a deal will bring it and your belief that it takes a very qualified person to get the deal and I brought it together. Just shut up, Brandon. I\u2019m helping you.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>But what I\u2019m picking on is\u2014we see it all the time, is the novice path, is when they get into multifamily, they get access to deals and they look at the offer and the memorandum from the broker. And in an offering Proforma, that from a broker should be Latin for a lie. And I\u2019ve tons of broker friends who maybe listen to this and they\u2019ll give me a hard time but at the same time, they\u2019re taking T-1 on a projected income and T-12 expenses, which really isn\u2019t going to work that way or a lot of assumptions baked in that you\u2019re not going to experience so you\u2019ll have to break it down yourself. So when you look at that, especially when you first start, it gets really sexy and romantic. I mean, a lot of money is sexy and romantic. You guys would agree, right? I mean, making $100,000-$200,000. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, I did it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>That\u2019s the only reason I\u2019m Brandon\u2019s friend.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Right. We\u2019re all sluts at heart. So when you look at this, when you look at a Proforma, you get excited. You can\u2019t not get emotionally invested and then at that point, you\u2019re dead because observer bias is going to make you cherry pick the really good facts and not really look at the bad facts. They\u2019re not really neutral. They\u2019re bad. And then you\u2019re in trouble.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>This is for everybody, whether you\u2019re doing a huge deal or a small deal. So how do you prevent against that bias that we all tend to have? How do you fight against it? How can a newbie trying to buy their first single-family house fight against it?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You make sure that you\u2019re only looking at deals where the things you don\u2019t control are ruled out. So real estate\u2019s a liquid. Right? So it\u2019s not like you can buy it and go, this sucks. Ditch it. It can be a shotgun wedding, if you don\u2019t do your due diligence. So if you don\u2019t realize the family\u2019s crazy, you\u2019re kind of in trouble but it\u2019s your fault for not checking out the family.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"> So what do you do? The MSA, the state, the submarket, the neighborhood, the zipcode collection, the 5, 3, and 1 mile. The actual site itself. You don\u2019t look at a site or location until you understand your management. So in single-family, you might self-manage. In our world, it\u2019s always third party or asset manager. So we only go to markets with those locations where we have an asset manager or a property manager that I trust with my kids. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then we shop together so when I\u2019m looking at a deal, I\u2019m getting their opinion, I\u2019m getting the mortgage broker\u2019s opinion, I\u2019m getting all these pieces of opinion, not just our own Kool-Aid in a market we already trust, so we\u2019ve already ruled out those variables where you look at a deal. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>This is very similar to how I invest in different markets across the country, in my book <i>Long Distance Real Estate Investing<\/i>. What I basically talk about is how I limit my own bias or my own ability to screw up a deal, right? Like I bring in different opinions. My Core Four, I call them. And they all have to be on the same page. What I do is, I align their interests with mine to the point where this is going to be a really rough neighborhood, my property manager needs to be so good and he\u2019s like dude, I don\u2019t want it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Even if I am trying to talk myself into it, it\u2019s that spreadsheet magic that looks so sexy like you said and you\u2019re trying to convince yourself, this is a good person to date when it\u2019s obviously not. You\u2019ve got your mom that\u2019s like no, David, that\u2019s not the right girl for you. There\u2019s other people invested in this. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And the other thing you said, but I\u2019ll let you come in, in a second\u2014you need to make like a beginner deal for newbies starter pack and all the things that new people talk themselves into a deal, they all do the same thing, right? Like they get a deal on LoopNet and they think that means they\u2019re a broker because they\u2019re on LoopNet and they are very interested in acquisition fees right away. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Like you said, their performance are horrible and they\u2019re like, this is the complete upside it could possibly be and this is the ideal situation of expenses that it could never be. And they make a business card that says CEO before they\u2019ve ever bought a deal and they don\u2019t know what a title company is. There\u2019s all these things that you\u2019re like, I can see your face. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You\u2019re like, yes, I can see this all the time and it drives me mad because there\u2019s a lot of kind of wannabe investors and they all do the same things but it\u2019s all based on I want to believe I\u2019m doing this and feel like I\u2019m doing it without actually having to know what I\u2019m doing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, and the thing is, you don\u2019t get mad at someone doing that because at least they are trying. It\u2019s far easier to direct a body in motion than to get it started in the first place. So they\u2019re already better than 95% of the population who say, okay, I\u2019ll be a meat puppet and do what I\u2019m supposed to do and be a W-2 employee the rest of my life. So kudos for that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But then it\u2019s okay, I think the other test is, someone is going to give me $50,000 or $100,000, whatever the number is. They\u2019re going to give me a slice of their hard-earned labor and time that they\u2019ll never get back. It is my job to do well with it. How dare I do that if I don\u2019t trust in my bones that I can do well with it. That\u2019s the part where that person would make me angry. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah. That makes a lot of sense. So let\u2019s fast forward to the end of your story real quick and then we\u2019ll backtrack. Where are you at right now? What does your business look like? How many units do you have? Kind of talk about that for a minute and then we\u2019ll pick up some of our questions.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, we\u2019ve done $425 million in transaction in volume. Our goal is to get to\u2014our preliminary goal is to get to $1 billion in asset on management. So the first one was $500 million. We\u2019ll hit that. We\u2019re currently acquiring it at about $100 million a year. We\u2019ve been doing this for ten years. We deploy about $135 million in equity, about 3,000 doors. So that\u2019s sort of our space right now. We\u2019re currently pruning some of our smaller deals and everything. Now we\u2019re buying in the $15-$35 million dollar range.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>So you said you\u2019re still buying, I mean right now, like $100 million a year. I mean, the market is crazy right now. We all know that there\u2019s a lot of competition. There\u2019s a lot of people that are okay with getting a small return or almost no return, right? Especially foreign investors are happy getting zero percent because they\u2019re not losing money. I hear those complaints a lot. How are you able to pull out deals then in today\u2019s market when it\u2019s that competitive or you need to try to earn something better. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Well, you might get zero percent if you\u2019re in a core coastal market where the cap rates are like 3.5 or 4 or you\u2019re putting 300% down to get a little bit out of it. Like if you\u2019re still in a let\u2019s say, 5 or 5.5 market, which is really low compared to where it was. But what\u2019s a cap rate? It\u2019s a measure of\u2014it\u2019s a market\u2019s opinion of risk adjust return. So the way the levers work is the lower the cap rate, the more meaningful the value add is for every dollar <\/span><span class=\"s2\">[Inaudible][39:42]. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">It\u2019s tough right now to just park money and wait for inflation to help. You\u2019ll do okay but you\u2019re not going to make a lot. But if you know how to add value whether you\u2019re adding\u2014it\u2019s operational in nature and that\u2019s pretty quick or whether it\u2019s $2K a door, $4K a door, $10K a door\u2014the cool thing about this asset is you can go look at all the other things around you in a five-mile market area and know exactly what your comps set is, what they do, what amenities they have, how they market, how they take care of the clients. And you can determine\u2014you\u2019re not beating them necessarily. You\u2019re trying to find out what you can offer that is a gap in the marketplace and knowing that gap. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then so there is a science to that. You\u2019re not guessing. When you know you can do that with a value add program in a 5.5 cap market, you can still absolutely make money. Now are you making a little bit less than you did two years ago? Of course you are. Because interest rates have inched up a little bit. All those spreads have come down to help but you\u2019ve got this cap rate cycle. But if you then compare it to other real estate asset classes, it\u2019s still doing really, really well. Retail is struggling. Office is struggling. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Different components are\u2014hospitality is doing great but when the market cycle turns, you\u2019re going to get some of that back. Again, our opinion. Those guys in that asset class are like, you\u2019re an idiot. You\u2019re doing boring multifamily. But if you compare it to non-real estate assets, right? No one believes a stock market isn\u2019t going to have some level of correction, right? Or they\u2019re scared to death it is and they\u2019re not putting new money in. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Even then, in long-term stock market, 7% with lots of volatility including one-half that is from dividends. Then you look at money markets, CDs, savings, bonds. So to the paper-based world, even though we\u2019re a little bit lower than we were, it\u2019s still better by comparison. And even if you\u2019re buying safety, it\u2019s still better by comparison. It\u2019s just a little bit less. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>So real estate is the cleanest shirt in the dirty laundry right now. I say that\u2014it\u2019s absolutely true in ways.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>That\u2019s not bad.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Can you give us some quick and easy wins? What are some things that you commonly look for like your first set of criteria that you\u2019re scanning for that would catch your eye, like ooh there\u2019s an opportunity we can add some value here. This is worth looking into. Because what you\u2019re saying is basically, the deals aren\u2019t just laying around for you to go pick up like they were in 2010. You actually have to know what you\u2019re doing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You have to see something other people don\u2019t see, what you refer to as the gap. Find an opportunity and capitalize on it. So what are some things for people that are like, yeah I want to be a multifamily guy, what should I be looking for? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Let me only answer that in terms of a process. I think that might be as useful because I personally don\u2019t think there\u2019s any one thing. It\u2019s not like we always put LED lighting in or we always change out the countertops. Sometimes we don\u2019t. Or we always change from black to stainless or beige to black, or modify flooring. 80% of your potential renters are already living within five miles of the asset. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So you know where they live so you can look at those comps. It\u2019s labor-intensive but that\u2019s why you get paid. That\u2019s what you should be doing. So when you can\u2014let\u2019s say you\u2019ve got, an easy example is you\u2019ve got two assets within a mile of your property that are renting at $150 a door or more than you. And it\u2019s because they\u2019ve got better flooring and granite versus Formica. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You\u2019re like, okay, if I can install those at a level that we can monetize that, and not match them but fade them, draft them the marketplace but be a little bit lower but still offer them that kind of experience, that\u2019s easy right there. Because you\u2019re not trying to exceed them in the marketplace, you\u2019re just trying to draft it so your marketing is yeah, we look the same inside. But guess what? We\u2019re cheaper. But you\u2019re already creating a lift in your value. So that process itself works all the time.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I like that you said drafting, like the term where you\u2019re drafting behind a semi on the freeway to try to get better gas mileage. You\u2019re finding what those guys are doing and saying hey, I\u2019m just going to do that. Maybe a little bit cheaper or maybe a little bit better. What\u2019s the phrase we just learned in Go Abundance? Waterski in someone else\u2019s wake.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, waterski in someone else\u2019s wake.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, because you don\u2019t have to reinvent this whole thing. I mean, are you generally looking, and I know the answer is probably both, but are you generally thinking when you\u2019re looking at value add, I\u2019m going to add, increase rent or I\u2019m going to decrease expenses? Which is your primary focus if you have one?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>The simple answer is you do both but you\u2019ve got far more elasticity in rent growth and other income growth than you do in op ex. Because there\u2019s only so much you can constrain. Typically, your big levers are how much you can move rent and other income. Also, what you can do scale-wise on your capex plan. Being able to save an extra $200 per cabinet renovation across 200 units, it adds up. Or certain things like that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The rule of thumb is you\u2019re going to be spending between 45-49% of your gross income on op ex. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Op ex is operating expenses.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Your operating expense. But in residential, it typically gets higher than that. But a general rule of thumb and depending on the property taxes in the state you\u2019re in\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, we often call that the 50% rule because it\u2019s about 50%. You\u2019re going to spend half of your income, give or take, goes to expenses not counting the mortgage.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>And with some vacancy allocation. Right, right, right. So yeah, it\u2019s mostly that growth. But there are ways to tack on other income, whether it\u2019s through a renter insurance program or cable bundling. So their other income is kind of interesting because it\u2019s a way to create consistent juice over time that when you can\u2019t move market rents.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>So one thing I should have said earlier that we could have talked about earlier, but this is a little higher level show and I like that. I want the show to be a higher level show but for those listening who have no idea what we\u2019re talking about, here\u2019s a quick summary.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So multifamily commercial properties are valued and go ahead, Chad, if I say anything wrong here, let me know\u2014multifamily are basically valued based on cap rates but you\u2019re essentially saying, the more profit a business makes, the more profit an apartment complex gives you\u2014or you could say NOI\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>The net income, yeah.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>The more net income, the more the property is going to be worth. So in other words, if we can decrease expenses by saving money here or there or increase the income, that makes the value higher. So when we\u2019re saying value add, we\u2019re talking about that. Is that a good way of kind of trying to summarize it?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Perfect.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Okay. So like, this works with primarily multifamily. Yeah, it works a little bit true with single-family, maybe, but in reality, single-family houses are worth what that single-family house over there is worth. You can compare them pretty good which is what agents like David here will do when you hire an agent. They\u2019ll go and look at other houses and say, well that one had a little bigger garage. It\u2019s probably worth a little bit more. But multifamily, it\u2019s more that one had a more net operating income so it\u2019s worth more.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>That\u2019s the thing we didn\u2019t like is you can\u2019t control your square foot comp. And when they got rid of income\u2014we had a bunch of duplexes, tris, and quads, and then once they killed the income appraisal in the four units and down, you just killed that space.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, because we can\u2019t do anything to change it. If I go and increase rent a little bit, it doesn\u2019t matter. It\u2019s still worth what the other duplex is worth. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Or a single-family with the same square footage.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, exactly. It\u2019s like that sucks. I get why that\u2019s why people get into multifamily. It\u2019s a really powerful way to increase that. So okay, now I want to move over to\u2014this is something I\u2019m fascinating by is how you actually run your business.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So you\u2019ve got thousands of units. You\u2019re obviously raising money. We\u2019ve got all those parts we talked about earlier. You\u2019re managing the business, managing the money, managing the deal flow, managing the actual properties. So what does your structure look like and I want to dig into like, how much time are you spending on a spreadsheet running numbers? And how much time\u2014in other words, does somebody in your team do that? What does your team look like, I guess, is where I\u2019m getting at?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>So, and by the way, I literally will have these conversations on an airplane. What do you do? I do this. Oh, really? Break it down for me. I get the juice of just deconstructing business models. So we\u2019ve got 13 people. We\u2019re in Richmond, Virginia. None of our assets are here. We love it here. It\u2019s a great place to live. The problem is that the employment growth in Richmond is anemic compared to Texas, Carolinas, Atlanta. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Our name, The 37<\/span><span class=\"s3\"><sup>th<\/sup><\/span><span class=\"s1\"> Parallel, it comes from two things. Funny enough, Richmond and San Francisco are basically on the 37<\/span><span class=\"s3\"><sup>th<\/sup><\/span><span class=\"s1\"> parallel but on opposite coasts. And my first business partner was West Coast. I was East Coast. Another piece of it is two-thirds of net domestic migration occurs below that line.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>What does that mean?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>So when you look at where people are migrating from, the northern states to the southern states, that migratory path is a combination of environmental and chakra factors and it\u2019s occurring primarily above that line. It\u2019d be more than that if you took out Seattle. But think about what\u2019s happening in New York, unless it\u2019s Manhattan. Almost every single city in the state has declining population growth. Look at Ohio. Look at Indiana. I grew up in Kansas City. Similar scenarios. It\u2019s just jobs aren\u2019t flowing there and they are really below that line.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But when you\u2019re putting a business together, we knew we were going to build a business that wasn\u2019t going to be in our backyard. So assumption that we had a build-around. So right now, I\u2019ll tell you where we are current-day. Basically, when we go into markets, we want to know that we can have a third-party property manager that we can treat like a member of our team. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So in property management, if you take a building, a building has an onsite manager that works 9 to 5 there and they\u2019ll have one or more leasing agents that work with them, and one or more maintenance staff that works with them. Typical rule of thumb, one FTE for every 50 units. So one full-time equivalent. So if it\u2019s 100-unit, you\u2019ll have one in and one out. One manager and one maintenance. And that scales approximately over 50 units. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So those are staff of the property management firm. Then above them is a regional manager that controls anywhere from 5 to 10 properties and then above them will be a VP or relationship level person inside the property management company. And most of the companies we are working with have 20,000 or 30,000, or 50,000 units under management.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So that person, what we do is when we go to partner with them, we\u2019re like hey, I don\u2019t want to interface with your relationship manager. I want to work directly with your regional and the site staff. And I want to be able to say, basically here\u2019s our business model. We want to know that we can work with them like our team. Because for us, we\u2019re very management intensive. We manage all the cap ex. They just feed you the care and fit feeding and push our business plan. But you have to make sure the property manager\u2019s okay with that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Some are like, we\u2019ve got this. Leave us alone. And we\u2019re like, for us, no. That won\u2019t work. So you\u2019ve got to find that right partner. So then we have asset managers on staff. I\u2019ve got both of my folks, they\u2019ve got multi, multi time with equity, multifamily, hunt, some really fantastic companies. They just want to be more of an entrepreneurial organization so we drew them over. They\u2019ve got 50 years combined experience across these asset managers that run our portfolio. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But we didn\u2019t have them day one. We had to be big enough to bring them on and show them the big picture. But we\u2019ve also got an office manager, a controller, a technology financial analyst. And it\u2019s myself and another guy, my business partner, Dan. We basically own 90% of the company. We\u2019re both comanagers. I do platform development, capital development and a lot of our marketing and messaging and he does primarily acquisitions and asset management. We\u2019re both prior Anderson Dods. I trust him with my kids and all that stuff. So that\u2019s current.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then we\u2019ve got a registered rep who helps on the sales side and his partner in Austin, Texas, and they help us on deal raises and then we also have market and education, a gentleman who is a retired doctor named Dennis Bethel out in Fresno, California. That\u2019s our team.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s cool. I find that fascinating to dig into people because everyone\u2019s business runs a little differently. That\u2019s always a question I ask on planes, too. Like how does your business work? I mean like yeah, take me inside it. That\u2019s cool. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, so you\u2019ve got all these units and you\u2019ve got all these people running different things. Where are you headed? Where do you see the future of your companies going, just keep more multifamily or do you want to scale up larger deals?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>There are models in front of us. There are companies that are 5x, 10x, 100x our size that are still exclusively multifamily. So I mean, there\u2019s a company out in San Diego that started 20 years before us. It\u2019s been in business for 30 years, has $5 billion in assets and management. Have they done some mixed use, have they done a little bit of development? Sure. But it\u2019s still been multifamily primarily. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So for us, you don\u2019t know what the future\u2014I\u2019m not a big believer in 10-year plans. Stuff shifts, right? The evolution is those who can adapt. So for us, we know the asset class is not going anywhere but how do you be the best in that asset class? Well, there\u2019s different ways to do it but it\u2019s at a billion, which we think will hit in let\u2019s say the next five to eight years, hopefully. But that requires us to get more equity so we\u2019ve got to fund products coming out. We\u2019re moving in the DSV, the 1031 Delaware Statutory Trust space that lets us take different equity sources and still own the same asset class and perform with an asset class. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Okay, so I want to ask you a question before you move onto the deal deep dive. You mentioned all the pieces that you put together to build your team. For somebody who wants to follow in your footsteps, can you give me the order that you would look for as far as the easiest way\u2014where your foundation is or what you\u2019ve built up from there as far as team members are concerned?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, so it\u2019s back to your gap, those four rocks that I talked about. Business architecture, deal, capital, asset management? Asset management is one that early on, you can probably rely on third parties and you won\u2019t make as much money as you could but you\u2019re not just going to blow up.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But it\u2019s really hard to outsource capital development. Or marketing in general. Most people are not comfortable in that space but sort of find someone that\u2019s done what you want, do what they\u2019ve done, get what they\u2019ve got. That\u2019s the price of admission, is you\u2019ve got to be able to tell your story and put capital together. It\u2019s the ultimate entrepreneurial skill. It\u2019s capital formation. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I think either you or whoever you bring in, you have to solve for capital and you have to solve for deal. And then between the two, you\u2019ve got to then figure out that business architecture and then you can add asset management later. If you start with that, that\u2019s great and all but if you can\u2019t get the deals or you can\u2019t get the money flow, it won\u2019t matter. So I think it\u2019s first identifying what you want to be best at, or are best at, and then how you augment the place you\u2019re not and then go from there.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Like for us, it was two people and then we added an office manager because we just hated admin and we needed a lot of paper flow to move around. And then we added a deal analyst and an operations analyst skillset, and then we added client relationships and client management. We started in my library at my house. Then I built a back addition then we had five people stuffed here. And then we had one office space and now we\u2019re in 9,000 square feet. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>It builds slowly. People might be looking at your story and go, wow, I want to be right where Chad is but like you took ten years to get here and you have a lot of deals and each deal adds more income and adds more ability to begin getting more people. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Knock on wood. 100% profitable track record so we want to keep that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, that\u2019s awesome, dude. So let me go to one last question before Deep Dive. Everyone\u2019s talking about the real estate market. Is it too late to get in? This ain\u2019t 2012 or 2011 anymore. How are you looking at the market\u2014obviously, you don\u2019t have a crystal ball but what do you see for the future and how is your investing changing because of where we\u2019re at in the cycle?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, that\u2019s absolutely stuff we talk about all the time. For us, we first have to look at the tide, which is demand and when you look at components of demand growth in multifamily, the number one thing is really household formation. If you\u2019re not working in a coastal market that has environmental nuances or a retirement market, it\u2019s household formation. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So what\u2019s household formation? Well, you\u2019ve got people moving into the renter life cycle and psychographics. People just deciding to stay there or move in. So we still are\u2014the population\u2019s still growing, right? And it\u2019s a mix of domestic and immigration. Even with all this talk of immigration, it\u2019s still a huge driver of the economy and it\u2019s never going to go away. And U.S. immigrants rent more than they own and in the whole U.S., it\u2019s a right, not a privilege to own a home. It\u2019s fading.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So when you\u2019ve got the Echo Boomers that are the 18-30 range, rents at a 75% rate and the Baby Boomers that are renting at the fastest-growing rate, and they\u2019re over 55. And they\u2019re going to live until they\u2019re 85. And once you rent, you never own again. Those populations are still solidly in that renter group. Then we\u2019re adding more household formation. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">There\u2019s a great graph. It\u2019s a census chart just at the 18-35 age range that NMHC puts out, National Multifamily Housing Council. And you look at that curve, we still have another five to seven years of increasing renter populations before it flattens out a little bit just in that group. But it doesn\u2019t dip and then it goes up again in another 10-15 years. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So we\u2019re not worried about demand. We worry about oversupply, so that\u2019s really market location. And it doesn\u2019t affect B-grade stuff as much but there is a trickle down effect. So we looked at acutely and then we do worry about the financing market, because at some point, as the market really gets frothy in terms of volatility, it will affect how much capital says yes, I want to buy a billion dollars of CNBS loans. And be like, I\u2019m just going to stick it in a mattress. And it\u2019s going to somewhere else.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">It will be harder to buy but it will still exist. But when it does, other private liquidity comes up, a little bit more expensive but still there, but you\u2019ve got to be ready for it. So for us, it\u2019s a great analogy I saw at a conference. It\u2019s not whether\u2014some people think it\u2019s the eight or ninth inning. What if it\u2019s a double header? So when you look at economic cycles, we\u2019re in a really long one and they do ebb and flow pretty consistently but demographic cycles, they last for 20, 30, 50, 70 years. So if you\u2019re looking at those trends, we\u2019re in a double-header. Economically, there\u2019s going to be some bumps. Sure, the demographics aren\u2019t going to go away. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Okay, so you\u2019re basically saying the fundamentals look good. Across the way, the fundamentals look good. What might happen is the market might get scared because something triggers it. But like fundamentally, there doesn\u2019t look to be anything in the economy that\u2019s scary like it was back in \u201907. Would you agree?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Totally agree. And especially in the group that we serve, that light blue collar, they\u2019re still going to have that. in fact, the group we don\u2019t serve, the huge need is that underserved low-income group. It\u2019s a massive opportunity in that there\u2019s a need. It\u2019s just really hard to monetize. It\u2019s not sexy. It requires some government intervention to make those programs work. Light tech, low-income tax credit. There\u2019s a huge need there. That\u2019s the biggest part of the demand curve. It\u2019s just that private money doesn\u2019t want to flow there because rents are so capped.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, I\u2019ve actually said that quite a bit. I live out here in Hawaii now, in Maui, and prices are just crazy. A studio apartment is $2000 to rent. But I\u2019m always thinking if somebody can\u2014and maybe I\u2019ll get into this, maybe not, but like, if somebody can figure out how to work low-income housing, there\u2019s a lot of pressure from the top-level of government. We need more housing. We need more portable housing, so there should be opportunity there and no one really wants to work like you said. It\u2019s not a sexy business. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>But you can make a lot of money with the incentives that you create, but you\u2019ve got to jump through so many hurdles to be in that space. The barriers, 2x, 3x, just normal multifamily to get into the light tech space.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, we talked about that a couple of weeks ago on the podcast. Maybe it was last week or two weeks ago. Anyway, we talked about, with Graham, about this idea that you can make money in almost any kind of real estate. Just, are you willing to go invest in that thing? Opportunity zones or low-income housing or whatever. There\u2019s a lot to do. To revisit the very beginning of this conversation today, you said, how do we get good at that?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So if I want to get into low-income housing, how do I go into that. I want to go into mobile home parks, how do I get good at that? If I want to get into whatever, how do I get good at that? And then modeling others is a good way to do it. Awesome. All right. It\u2019s great. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So let\u2019s move on a little bit and get a little bit deeper into one of your deals. This is the Deal Deep Dive. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>All right, you guys hear me talk about SimpliSafe a lot but don\u2019t take it just from me. Investors are singing its praises in the BiggerPockets forums. Jim, a contractor from Pittsburg, says he secures his vacant property using SimpliSafe. He likes how he can set it up at one property then easily take it down and move it to the next. And for 24\/7 professional monitoring, you pay just $15 a month. So try SimpliSafe today. It feels good to fear less about your property. Plus, there\u2019s a 60-day risk-free trial with free shipping and free returns if you\u2019re not 100% satisfied. You\u2019ve got nothing to lose so visit SimpliSafe.com\/Pockets today so they\u2019ll know that we sent you. That\u2019s SimpliSafe.com\/Pockets. Save today!<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right so this is the part of the show where we\u2019re going to dive deep into one particular deal and you\u2019ve got one in mind, correct?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>All right, so let\u2019s just dive in and just kind of fire match you. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>First of all, what kind of property is this thing and where was this located? Kind of give us an idea of the property before we get into the specifics. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>First, we bought it\u2014it was 163-unit in Louisville, Kentucky.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Okay.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Not Louie-ville. Louisville. If you don\u2019t say it right, they know you\u2019re not from there.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Yeah, what is the right way to say it\u2014I mess it up all the time. It\u2019s Louis-ville. Clearly.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You\u2019ve got to sound like you\u2019re swallowing your tongue. It\u2019s Louisville. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>That\u2019s a good plan. In order to be correct, you have to sound like you\u2019re incorrect. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>There\u2019s going to be some Kentucky people pinging you on your show saying you and Chad screwed it up.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>I\u2019ll tell you what, BiggerPockets\u2014all right. How did you find this deal?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>We do some educational work and one of the people had found us the deal and brought it to us and said, hey, what do you think? And we were like, fantastic. And this is the only deal that\u2019s happened like this. I don\u2019t think we would have gotten it otherwise. It was broker-listed. It wasn\u2019t like it was out in the middle of nowhere. It was being weirdly marketed, let\u2019s just put it that way.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I found the deal and then negotiated with the broker for a little bit and eventually said, we got this. And got permission to go direct to the seller and then we worked directly with the seller on it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>The broker let you do that?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, because he already had a commission agreement. He just wanted to get the deal done.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Did you have to shug-night the broker and hang him over the balcony and be like, get out of the way and let me do my own negotiating. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>I\u2019m actually pretty sure the seller was the one who drove it because he\u2019s a deal guy. So he was like, hey, we got this. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s funny. All right, so how much did you pay for the property?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It was $10.5 million. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>And was that what they were asking originally or did you negotiate that down?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>They wanted north of $11 million and we\u2019re like, it doesn\u2019t pencil out. It was an assumption. It doesn\u2019t pencil out at that. If you can get that, great. We\u2019re not a buyer at that price. Then it was, okay, they wanted an equity carry in it so they would sell it to us at one price and get some equity later. And we\u2019re like, what does that look like? Who has control? It\u2019s really messy. Are you sure you want to do that? Went back and forth a couple of months and eventually we\u2019re like, can you just buy it from this? And they were like, yeah. No problem. So eventually we landed on the price.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Do you think if you had offered that, can we just buy it for this number in the very beginning, that would have worked?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>We did.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>And it didn\u2019t work. Right. So that\u2019s the point I want to try to make out. People make decisions emotionally, even the really, really smart, logical, spreadsheet nerds who do things. You wear people down. People get worn down. Things change in life. In that original offer, they said no, don\u2019t get discouraged because six months later, things could have changed. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">They could emotionally be worn down. They could have another deal they want to go buy and they need to sell it at this price and it\u2019s worth it because they\u2019re going to make so much money on the next one with the 1031. So I love that you brought the same thing back to them and they ended up taking it. Okay, enough about me. How did you fund this deal?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>We put together, it was $4.79 million in equity. And the way we do it is, I talked about the Mac profile and getting expressions of interest early on. We built a high investors network group where we\u2019re educating them in how multifamily investments work. Here\u2019s what we\u2019re good at. Here\u2019s why we do this. If you really believe the same things we believe, join us. If you don\u2019t, no big deal. So we\u2019re not trying to pitch anyone, we\u2019re just more, here\u2019s why we like it. Here\u2019s all the same data. Do you have the same conclusions we do? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And if we\u2019re aligned and they become part of our investment group, then when deals come up, we know\u2014and this is a key thing for people listening is, you want to be able to pull your group of investors and understand, hey, where are you in terms of your min\/max equity location of this? What\u2019s comfortable for you? So you kind of know along the way, what is your available to buy? Is it $2 million? Is it $10 million? Is it $30 million? And is it a hard committed number inside a fund? No. But if you\u2019re good at what you do and you take care of your client, your loss will never be that much. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So we knew going in, we had that ability to raise. So it wasn\u2019t a scary raise for us at the time. So it was only\u2014it was $3.18 million in equity to take the deal down, do assumption and all the prepays. They we add six months of rainy day reserves. We basically had six months of debt services going in. Never not do rainy day reserves that just sits there staring at us doing nothing. But it\u2019s good business management. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>So then what did you do with the property? What ended up?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Refresh the office\u2014we started a unit improvement program, we had to do repairs on deferred maintenance on roofs and stairwells and ducts. And we only held this property for two and a half years. And then along the way, we had a broker who said, hey, we\u2019d love to list this for you. We were like, we\u2019re fine. We\u2019re in the middle of our path. We don\u2019t need anything. And he kept bugging us and eventually we were like, what number makes him go away? So we were like, you\u2019ve got to give us $14.6 million. And he said, we\u2019ll take it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Wow.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>This will happen sometimes. We are a singles and doubles business. We\u2019re Moneyball. But if you take care of the downside, you\u2019ll get homeruns sometimes. So this one was, we bought it for $10.5 million. We were going to sell it for $14.6 million to a much, much, much bigger company that wanted to use this asset as an anchor play for their other lower-grade assets. So they were working within multiple levels of the renter profile.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">This is an important piece, too. In the credit profile for people that are leasing apartments, this will be the same, I think, in residential, too. But you typically look for their income is three times their rent. The 3x Rule. So if you are looking at the 3x Rule, a median household income in your zip code collection is $57,000. Okay, where\u2019s the rent range? What about those that are at $45,000? Where\u2019s our rent range? What about those that are at $67,000? What\u2019s their rent range?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So a bigger player sometimes will go into a location and buy a portfolio and cover as much of that rental range as they can. Because they\u2019re not going to go to one asset when they can manage, brand, and comarketing across those assets based on different median household income.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Fascinating. I\u2019ve never heard that talked about. So if somebody comes in, I mean like, from a specific example, if somebody comes into the $1000 a month rental place and says hey, I want to rent this. And you guy, oh, your income is not high enough. You can only qualify for $800. Well, we\u2019ve got this other product right here that\u2019s going to work for you. So now we\u2019ve got that cobranding. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Bingo.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Very cool. All right, so what was the outcome\u2014you sold it for $14.6 million. I mean, without me having to spend too much time doing math, do you remember about, if you had to guess, how much money you made off of this property in profit?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, I mean. Let me look at it this way. It was enough to take that money and reinvest it via 1031 Exchange into a 419-unit building that was a lower cap rate just south of UT Dallas in Texas. So we put together\u2014I mean, the chunk that went over was about $3.5 to $3.7 million of those proceeds.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s cool. Hey, one question on that note that I should have asked you earlier but we\u2019ll do it here in the <i>Fire Round<\/i>. So one thing, when I\u2019m looking\u2014I mean, I haven\u2019t really started raising much money for anything yet but maybe I\u2019ll get into it. I\u2019m sure I will at some point. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But one thing that\u2014if you offer people a 5% cash in, and you\u2019re estimating let\u2019s say 5-6% cash in cash return but hey, at the end of the day, your IRR is going to be, I don\u2019t know, 13, 14, 15. Do your investors bulk at the, I want to get more than 5% cash in cash return or are they really just looking at the end of the day, either the IRR or the average return? Is there a number where people are like, no, I won\u2019t do it. It\u2019s high enough cash on cash. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It wildly depends on the person. It does. Do you hear that? Hey, that\u2019s too low. No problem. What are you looking to get and then are you looking to get into this asset class? Because some people are like hey, I want 8%. Well, that\u2019s going to take a higher cap rate in a market with more risk. And are you okay with that? Nothing wrong with that but it\u2019s like the old school financial advisor questions\u2014what\u2019s your risk\/reward profile? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And then for us, it\u2019s like would you rather have an asset class that\u2019s been historically really profitable with a manager who\u2019s got 100% profitable track record who is as efficient as possible in this asset class and will automatically reinvest in these deals and greater cashflow? And then by the way, it\u2019s a legacy company. We\u2019re not going to flip the company. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We\u2019re going to be here until we\u2019re dead and that\u2019s 40 years from now. What do you want to do with the money? So if you want to make it a legacy play in a wealth building platform, we\u2019re pretty damn good at it. If you want different things, that\u2019s fine. We\u2019re just not going to fit. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I like that. All right, last question, and I\u2019ll just steal it from David because I\u2019m already on a roll\u2014what lessons did you learn from this deal?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>That it absolutely pays to give people sometimes ridiculous numbers to see if they\u2019ll take it. Because the reason why we sold it is the number we gave them was basically what our planned profit would have been three years later. So we basically sold it at our five year and a half price at two and a half. So that IRR acceleration, our investors would have looked at us like we\u2019re stupid had we not done it. And honestly, buy good dirt. If you buy in a location where you put your grandma\u2019s last $100,000, odds are you\u2019re never going to lose money. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s a great rule of thumb.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It sounds really trite, like duh. But if you\u2019re literally taking that task to heart, you would avoid a lot of sort of, if I sell it fast enough, I\u2019ll be okay. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, and that\u2019s where that emotion can start playing in and that bias that I just want to make a deal work. I like that. If you\u2019re going to put your grandma\u2019s last $100,000\u2014I love that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Because if emotions are going to be out there, use it to your benefit.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>All right, very, very cool. So let\u2019s shift gears one more time and head over to the world famous <i>Fire Round<\/i>. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>It\u2019s Time for the Fire Round<\/i>.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>Our sponsor this week is a company a lot of you have been talking about on the forums called Roofstock. Roofstock is the number one marketplace for buying and selling single-family rental homes. Their marketplace of cashflowing rental properties makes it easy to invest in income-producing real estate across the U.S. They connect you with vetted local property managers and all properties are backed by their industry-leading, Roofstock guarantee so you can invest remotely with confidence. Why wait any longer to begin building your passive income stream? Roofstock makes it easy to become a rental property investor and start you on the path to financial independence. To sign up for our free account and start browsing cashflowing rental homes, visit Roofstock.com\/BiggerPockets. That\u2019s Roofstock.com\/BiggerPockets. Create your free account to get started at Roofstock.com\/BiggerPockets today.<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, let\u2019s get to it. These are the questions that come direct out of the BiggerPockets forums. We\u2019re going to fire them at you right now. Number one, from Jonathan from Santa Barbara, says, hey guys, I\u2019m looking to buy an investment property out of state. I\u2019m in Southern California and I\u2019ve heard you can get better returns elsewhere. I\u2019m curious if anybody has any advice on a good city to get started in. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">What would you say to a guy like Jonathan who just wants to know what city to go to?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>By returns, if he\u2019s talking about cash flows, he\u2019s absolutely right. But from an equity growth, if you can do a value add deal in California, you\u2019ll make a ton of money. You\u2019ll make more money than God. It\u2019s\u2014you\u2019ve got to do it right. Good, stable markets, I would look at, Denver is a little bit less expensive than California but still pricey, but it\u2019s solid. It\u2019s never going to go anywhere. Dallas, San Antonio, Houston. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I would say in the big three. 50% of the Texas population is going to live in that triangle in the next 20 years. Austin and San Antonio are kind of growing together. The Carolinas. There\u2019s really not a bad city there as long as the population\u2019s over a half million and Atlanta, we like. From the Louisiana, Mississippi, Alabama corridor, not huge fans just because the school systems are so bad. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And crime is off the charts just from a state and local perspective. So blue collar is hard there. It\u2019s doable, just not our place. But those are actually some good places to start. And those are good. All those, while getting pricier are still good at blended cash and growth markets. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Awesome.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Great. Okay, next question from Derek. I am looking to start investing in multifamily properties. I have set up my Proforma spreadsheet and I am pretty sure I\u2019m accounting for all the expenses but I don\u2019t want to leave anything out. What are some expenses people forget about that come back to bite them?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>A lot of people\u2014what you should do when you go to buy is you need to underrepresent your going in occupancy to give yourself about a 2-3 point buffer. Because you\u2019re going to deal with some level of changeover from one property manager to another. And just, it\u2019s far better to overestimate expenses than under. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So one way to do that is also just have a buffer on your occupancy. That\u2019ll give you automatically some room on your Proforma. And then only allow yourself to catch up to market after the second or third year. So do that and you\u2019ll give yourself a lift. Really understand property taxes. It\u2019s your biggest expense. That\u2019s where most people get hosed. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">A broker might say, well, let\u2019s just assume 80-85% of the sales price is where you get pegged at for your value. It wildly depends on the market. What happens when they go to 95% and you have to beat it down via a tax protest? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>That\u2019s incredible advice. Again, whether you\u2019re buying your first deal or your hundredth, whether it\u2019s 100 or one unit, give yourself that buffer. That\u2019s perfect. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, number three. We\u2019ll call this the last one of the <i>Fire Round<\/i>. Deepa from Auburn, Washington says I\u2019ve been looking for my first multifamily deal after listening to a lot of BP podcasts. I\u2019m convinced the only way to find those deals is going to be through a broker. But I\u2019m not sure how to approach a broker without any deals under my belt. Any suggestions on how to approach one that will actually want to work with a newbie like me?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Staple hundred-dollar bills to your entire body. No, so how are brokers paid? Brokers are paid when deals close. So they are going to want to know are you real? Are you competent? And do you have the ability to close? And then, they\u2019re going to ask you questions like, what\u2019s your equity? Where are you looking to buy? Who\u2019s your management? Who\u2019s your closing counsel? Because the team that associates with you creates transit of trust. Transit of property, A equals B and B equals C and A equals C, right? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And so there\u2019s a fantastic book called <i>The Speed of Trust<\/i>. But the transit of trust\u2014if you\u2019ve got to be good enough to get there, time as well. So the rule is, if you have the money\u2014and I\u2019m assuming this person has the capital. Otherwise, they have no business looking right now. Full stop now. Work on that. And then work on management in that market. Who are the property managers that can provide you intel and work with you that can also help you validate and work with where you want to be? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Then when you have those two things, then maybe understand who might your closing\/title be in that location? Then go to talk to brokers. Because until then, you\u2019re wasting the broker\u2019s time and your time and you\u2019re screwing up your first intro. It\u2019s far better to start with the higher level than to be a total newbie and them always have that opinion with you. Because you only get what, five to 15 seconds? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Yeah, Brandon always talks about borrowing credibility. That\u2019s another way your time of transit of trust\u2014well, you\u2019ve got this really good team around you. They are speaking towards your credibility. And then I say rock stars know rock stars, right? So if you want a good team to work with you and you want rock stars to work with you, well you\u2019ve got to show yourself as one. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">What I notice a lot of people do is they don\u2019t want to put the work in to learn the business. They don\u2019t want to figure it out. They want someone else to make it easier for them. So they go to these people that should be on their team, that they should be partnering with, and they basically without realizing it, subconsciously annoy that person by saying teach me everything I need to know. Make me feel better. Take away my fear, right? Which is the easiest way to propel a rock star in front of me. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Like if you come to me and you say you want to buy a house and I put in all this time into you and it turns out you can\u2019t even get pre-approved and you can\u2019t get a loan, I\u2019m not going to be very appreciative of the fact that you just took all my time to learn basics of buying a house. Unless you told me that in the beginning. So that\u2019s really good advice for people. You need to build that trust. You want to borrow the credibility of a team and in order to do that, you\u2019ve got to make sure you\u2019re acting like a rock star and you\u2019ll draw the right people to you. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, be that rock star. Embrace the suck required to get good. But once you do that, the world is your oyster. But until then, it\u2019s not.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>You mentioned your military dad. Were you a Marine by chance?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Navy. So close to it, yeah.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Okay, so you\u2019ve got to have heard the \u2018embrace the suck\u2019. All right. Next segment of the show is our <i>Famous Four<\/i>. We are going to ask you the same four questions we ask every guest and I\u2019m going to let Brandon ask the first one.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Question number one, what is your favorite real estate related book, if you have one?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>It\u2019s hard in multifamily. I don\u2019t think there\u2019s any one book where I\u2019ve been like, ahh. So I defaulted to a book that I think does a fantastic job at forcing someone to think about demographics and that\u2019s Gary Keller\u2019s <i>Millionaire Real Estate Investor<\/i>. It came out, what, 10 years ago? Maybe longer?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Yeah, probably longer. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>But it\u2019s still a fantastic book on building a business around real estate and looking at market and submarket for that particular asset class. But then if you want to get into the bigger stuff in our space, you\u2019re getting commercial multifamily psych planning books and you\u2019re getting down in the weeds. These aren\u2019t Amazon bios at that level. But that book is still fantastic for real estate.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Very good book. I believe Jay Pappasan helped him write it and we\u2019ve had Jay on the show as well.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Yeah, it\u2019s good.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>What is your favorite business book?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>Bar none, I answer it every single time the same way and give it out, and it\u2019s <i>The Goal<\/i> by Eli Goldrath.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I have not read that yet.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>The Goal.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I\u2019ve seen it. It\u2019s been on my list on Amazon forever and I have not read it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You\u2019re doing yourself a disservice, sir. Especially as a business owner, right? It\u2019s the concept of the theory of constraint. We\u2019ve all heard that but it\u2019s done like a business fable. So it tells a story of a guy who gets dropped in to improve a manufacturing location that\u2019s failing. That consistent, that can I? That constant never-ending improvement that ties in process around constraint in management can improve any business. And that book is just a fantastic intro, too.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Cool. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Okay, what are some of your hobbies?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>I\u2019ve got a pretty active 13-year-old that plays soccer everywhere. So I travel both intentionally and unintentionally because of that. We also travel a bunch to Europe, sail. I like to kiteboard, don\u2019t do it enough. I stay pretty active. Kind of boring stuff but that\u2019s what we do.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I don\u2019t think that sounds boring. Kiteboarding, that\u2019s intense. Very cool though. All right, what do you think sets apart successful real estate investors from those who give up, fail, or never get started?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>I talked about it earlier. It\u2019s that commit. I\u2019ve seen so many people that were\u2014could have been, have Mensa apps thrown at them but they find a way to rationalize some things better and they\u2019re consistent starters and restarters, instead of just finding something that works and then doing it. But if you were to sit there and just really embrace that feeling of, you\u2019re going to take care of that kid, right? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">That commitment level. That 100% commitment to something? If you embrace that and apply that to your goal, you at that point would know you\u2019re unstoppable. It\u2019s not if, it\u2019s just when. So that\u2019s\u2014I don\u2019t want to be overly Tony Robbins, woowoo about it. But it\u2019s true. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Thank you for sharing this, Chad. This has been very good. The last question for me of the day is, I just want to know where can people find out more about you? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>You got it. We\u2019re at 37parallel.com. That\u2019s the number 37parallel.com. We have a ton of educational stuff and articles and webinars section, but we made our director of education\u2014he\u2019s a doctor and in medicine, they have this thing called evidence-based medicine, basically. What are those outcomes that are clinically proven to be better than others? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Well, he wrote a book called <i>Evidence-Based Investing<\/i>. And it\u2019s basically, what is the third party data and the activities that are proven to create better investment results? So that book, you can get at 37parallel.com\/EBI. It\u2019s just a collection of third party data. It\u2019s not a rah-rah about 37<\/span><span class=\"s3\"><sup>th<\/sup><\/span><span class=\"s1\"> Parallel but it is about multifamily. It\u2019s a great little asset. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Very cool. I\u2019ll have to check that out. Well, thank you again, Chad. Very much. This has been fantastic. Really, really appreciate you being here.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Chad: <\/b>My pleasure, guys. Thanks for having me very much.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>All right, so that\u2019s our show today so thank you guys for coming, for listening, for watching. That\u2019s all we got. So again, check out Chad\u2019s stuff and we will see ya\u2019ll around on the next episode of the podcast. And of course, if you like the show, rate and review it in iTunes and head over to the Show Notes at BiggerPockets.com\/Show317 if you have any questions for Chad.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And with that, I\u2019ll let David Greene take us out.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>Yeah, thank you very much, Chad. We had a great time today. This is David for Brandon \u2018Handsome Shirt\u2019 Turner, signing off.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>I think you did that one before.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>David: <\/b>I had to, I couldn\u2019t think of anything. I didn\u2019t let you talk enough this time to give you enough ammo to help myself.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Brandon: <\/b>Oh, good.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>You\u2019re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you\u2019re here looking to learn about real estate investing without all the hype, you\u2019re in the right place. <\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. <\/i><\/span><\/p>\n<\/div>\n<h2 id=\"podcast-youtube-video\">Watch the Podcast Here<\/h2>\n<p><iframe loading=\"lazy\" title=\"Building a $300M Real Estate Empire from Scratch with Chad Doty | BP Podcast 317\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/07DUfiLhlPg?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<h2>Help Us Out!<\/h2>\n<p>Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found <a href=\"https:\/\/www.biggerpockets.com\/forums\/25\/topics\/161423-do-you-listen-to-the-bp-podcast\" target=\"_blank\" rel=\"noopener noreferrer\">here<\/a>. Thanks! We really appreciate it!<\/p>\n<h2>This Show Sponsored By<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-101944 no-display appear\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/stessa-logo-300x67.png\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/stessa-logo-300x67.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/stessa-logo.png 330w\" alt=\"\" width=\"300\" height=\"67\" title=\"\">Stessa makes it easy for both novice and sophisticated investors to drive operational efficiencies, maximize revenue, and improve overall portfolio performance.\u00a0Just take a few minutes, add your properties, link your accounts, and everything updates in real-time. Stessa brings the institutional tools used by the pros to the everyday investor for free<\/p>\n<p>Get your free tax guide here:\u00a0<a href=\"https:\/\/www.stessa.com\/biggerreturns\" target=\"_blank\" rel=\"noopener\">www.stessa.com\/biggerreturns<\/a><\/p>\n<h2>Deep Dive Sponsor<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-77567 alignright no-display appear\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/03\/simplisafe.png\" alt=\"simplisafe\" width=\"271\" height=\"58\" title=\"\">Check out <strong>SimpliSafe<\/strong> Security\u2019s DIY home security systems; an affordable, wireless, cellular, and customizable system that doesn\u2019t require a contract!<\/p>\n<p>If you go to <a href=\"http:\/\/simplisafe.com\/biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">SimpliSafe.com\/biggerpockets<\/a>\u00a0you\u2019ll get 25% off any new system. That\u2019s an amazing deal.<br \/>\nThey rarely do anything like this but they\u2019re doing it just for us!<\/p>\n<h2>Fire Round Sponsor<\/h2>\n<p><strong><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-101508 no-display appear\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/roofstock-logo-300x120.png\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/roofstock-logo-300x120.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/roofstock-logo-768x308.png 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/08\/roofstock-logo.png 959w\" alt=\"\" width=\"300\" height=\"120\" title=\"\">Roofstock<\/strong>\u00a0is the #1 marketplace for buying and selling leased, single-family rental homes. Their marketplace of tenant-occupied rental properties makes it easy to invest in cash flowing properties across the U.S. and start earning cash flow day one. They even connect you with vetted local property managers, so you can invest and own remotely with confidence.<\/p>\n<p>To sign up for a free account and start browsing cash flowing rental homes, visit\u00a0<a href=\"http:\/\/roofstock.com\/biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">roofstock.com\/biggerpockets<\/a>.<\/p>\n<h2>In This Episode We Cover:<\/h2>\n<ul>\n<li>How Chad got into <strong>multifamily<\/strong><\/li>\n<li>What <strong>evergreen<\/strong> is<\/li>\n<li>Two real estate <strong>myths<\/strong><\/li>\n<li><strong>What comes first<\/strong>: deal or money<\/li>\n<li>The <strong>market<\/strong> he invests in and why<\/li>\n<li>His success <strong>metrics<\/strong><\/li>\n<li><span style=\"font-weight: 400;\">The four components of any <strong>successful business<\/strong><\/span><\/li>\n<li><strong>Raising money<\/strong> to fund an apartment building<\/li>\n<li><strong>Increase<\/strong> rent <strong>vs. decrease<\/strong> expenses<\/li>\n<li>What does <strong>his team<\/strong> look like managing thousands of properties<\/li>\n<li><span style=\"font-weight: 400;\">Rules of thumb for <strong>communicating<\/strong> with property management<\/span><\/li>\n<li>His thoughts on\u00a0<strong>the future<\/strong> of today&#8217;s market<\/li>\n<li><strong>And SO much more!<\/strong><\/li>\n<\/ul>\n<h2>Links from the Show<\/h2>\n<ul>\n<li><a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Forums<\/a><\/li>\n<li><a href=\"https:\/\/www.biggerpockets.com\/webinars\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Webinar<\/a><\/li>\n<li><a href=\"https:\/\/www.biggerpockets.com\/rei\/glossary\/\" target=\"_blank\" rel=\"noopener noreferrer\">Real Estate Glossary<\/a><\/li>\n<li><a href=\"\/renewsblog\/biggerpockets-podcast-250-grant-cardone-multifamily-investing-buy-house\/\" target=\"_blank\" rel=\"noopener noreferrer\">Grant Cardone on Multifamily Investing and Why You Should Never Buy a House!<\/a>\u00a0(podcast)<\/li>\n<li><a href=\"\/renewsblog\/biggerpockets-podcast-316-millionaire-real-estate-26-graham-stephan\/\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Podcast 316: How to Become a Millionaire Through Real Estate by 26 with Graham Stephan<\/a> (podcast)<\/li>\n<li><a href=\"\/renewsblog\/2015\/03\/12\/bp-podcast-113-becoming-millionaire-real-estate-investor-using-one-thing-with-jay-papasan\/\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Podcast 113: Becoming a Millionaire Real Estate Investor Using The One Thing with Jay Papasan<\/a> (podcast)<\/li>\n<\/ul>\n<h2>Books Mentioned in this Show<\/h2>\n<ul>\n<li><a href=\"https:\/\/amzn.to\/2E9r4Io\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Speed of Trust<\/em><\/a> by Stephen Covey<\/li>\n<li><a href=\"https:\/\/amzn.to\/2SPiyqf\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Millionaire Real Estate Investor<\/em><\/a> by Gary Keller<\/li>\n<li><a href=\"https:\/\/amzn.to\/2TI8LiV\" target=\"_blank\" rel=\"noopener\"><em>The Goal<\/em><\/a> by\u00a0Eliyahu M. Goldratt<\/li>\n<\/ul>\n<h2>Tweetable Topics:<\/h2>\n<ul>\n<li>&#8220;Money flows to competency not to good deals.&#8221; (<a href=\"https:\/\/twitter.com\/home?status=%22Money%20flows%20to%20competency%20not%20to%20good%20deals.%22%20BP%20Podcast%20317%20biggerpockets.com\/show317%20%40biggerpockets\" target=\"_blank\">Tweet This!<\/a>)<\/li>\n<li>&#8220;Capital formation is the ultimate entrepreneurial skill.&#8221;\u00a0(<a href=\"https:\/\/twitter.com\/home?status=%22Capital%20formation%20is%20the%20ultimate%20entrepreneurial%20skill.%22%20BP%20Podcast%20317%20biggerpockets.com\/show317%20%40biggerpockets\" target=\"_blank\">Tweet This!<\/a>)<\/li>\n<li>&#8220;If emotions are going to be out there, use it to your benefit.&#8221;\u00a0(<a href=\"https:\/\/twitter.com\/home?status=%22If%20emotions%20are%20going%20to%20be%20out%20there,%20use%20it%20to%20your%20benefit.%22%20BP%20Podcast%20317%20biggerpockets.com\/show317%20%40biggerpockets\" target=\"_blank\">Tweet This!<\/a>)<\/li>\n<li>&#8220;Embrace the suck required to get good. But once you do that, the world is your oyster.&#8221;\u00a0(<a href=\"https:\/\/twitter.com\/home?status=%22Embrace%20the%20suck%20required%20to%20get%20good.%20But%20once%20you%20do%20that,%20the%20world%20is%20your%20oyster.%22%20BP%20Podcast%20317%20biggerpockets.com\/show317%20%40biggerpockets\" target=\"_blank\">Tweet This!<\/a>)<\/li>\n<li>&#8220;Hospitals are 24-hour blue collar job factories.&#8221; (<a href=\"https:\/\/twitter.com\/home?status=%22Hospitals%20are%2024-hour%20blue%20collar%20job%20factories.%22%20BP%20Podcast%20317%20biggerpockets.com\/show317%20%40biggerpockets\" target=\"_blank\">Tweet This!<\/a>)<\/li>\n<\/ul>\n<h2>Connect with Chad<\/h2>\n<ul>\n<li><a href=\"https:\/\/37parallel.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Chad&#8217;s Personal Website<\/a><\/li>\n<li><a href=\"https:\/\/37parallel.com\/EBI\/\" target=\"_blank\" rel=\"noopener noreferrer\">Free Report for Evidenced Based Investing<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Ever dreamed of being a successful multifamily investor who owns millions of dollars in real estate while others manage your assets? Brandon and David sit down with Chad Doty, who ditched corporate life and now owns 3,000 units! He discusses what he looks for in a market, where he\u2019s currently investing, and TONS more!<\/p>\n","protected":false},"author":17340,"featured_media":117584,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4565],"tags":[],"class_list":["post-107568","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-podcast"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/107568","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/17340"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=107568"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/107568\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/117584"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=107568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=107568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=107568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}